ASEAN makes big push to use local currencies - China Daily

Recently, during a meeting between the finance ministers and central banks of ASEAN countries, a decision was made to reduce reliance on the US dollar and to reinforce the use of local currencies in intraregional trade.

Segi Enam's Khor Yu Leng said to China Daily:

…the plan to shift to local currency-based transactions shows that the ASEAN has acknowledged changing commercial and geopolitical realities.

"A bifurcated or multipolar approach would reduce trade and currency-related risks."

This also aligns with Southeast Asia's "balancing role" in global geopolitics.

Read more about it here.

The China-ASEAN Comprehensive Strategic Partnership

It is official: the China-ASEAN Comprehensive Strategic Partnership has been established. The announcement was made by Chinese President Xi Jinping in his speech on Monday, signifying a milestone in dialogue relations within the Asia Pacific region first established in 1991. According to President Xi, China is “ready to import up to 150 billion USD worth of agricultural products from ASEAN in the next five years”—almost double of its current ASEAN farm imports—and expressed hope for ASEAN’s cooperation in the Belt and Road Initiative.

A joint statement by China and ASEAN members states was also released, reaffirming cooperation several commitments, including the entry into force of the Regional Comprehensive Economic Partnership Agreement (RCEP) on 1 January 2022 as well as continued implementation of the ASEAN-China Free Trade Agreement (ACFTA).

Analysts have also noted that the announcement signified expanding China-ASEAN ties, with China calling for cooperation in new sectors including the digital economy. Deepening ties with China is expected to grant further trade benefits for certain ASEAN members as well, e.g. the tropical food trade for the Philippines.

Editor’s comment: In recent years, China has been a key importer of ASEAN fruits, vegetable oil and more. China summits have often pulled in ASEAN leaders who have touted their farm products, including pineapples, durians and more. As many countries produce similar product, the question intra-ASEAN competition arises; but rising demand in China could make the pie bigger for everyone.

SIIA Haze Outlook 2021

It is halfway through 2021, meaning it is time for another risk assessment report on the infamous haze within the Southeast Asia region. Together with the Singapore Institute of International Affairs (SIIA), we concluded that there is a low risk of a severe transboundary haze incident for this year, on account of favourable weather, pandemic-related disruption to land clearance and planting exercises, and proper forest management by various stakeholders, including the Indonesian government.

As usual, Segi Enam Advisors collected and examined qualitative and quantitative data from various sources, including recent academic literature, meteorological departments, and government agencies. We also provided geospatial analysis of key areas in the Riau and Central Kalimantan regions to give a geographical overview on hotspot intensity in relation to other information such has forest and peatland moratorium areas and districts with food estate projects in planning.

Read the full report here: SIIA Haze Outlook 2021

Edit (28.06.2021, 11.40 a.m.): ANTARA News covered the launch of the Haze Outlook 2021 report during SIIA’s virtual webinar on 24 June 2021. The article reported the statements made by guest speaker Herry Purnomo of the Center for International Forestry Research (CIFOR), who commended both the public and private sectors for their roles in reducing fires and deforestation, and SIIA chairman Professor Simon Tay, who opined that the extension of the Peat and Mangrove Restoration Agency’s tenure shows the Indonesian government’s fire prevention commitments.

Forced Labour: Legislators Seek Tougher Action on Forced Labour

The heat on palm oil companies is turning up. In December 2020, the US House Ways and Means Committee asked the United States Customs and Border Protection whether it had considered a blanket ban on palm imports from Malaysia and Indonesia, citing the Associated Press investigative piece on widespread labour abuses, which include rape, child labour, and hazardous working environments, within the sector. While acknowledging the USCBP’s recent efforts in penalising companies suspected of using forced labour, the 25 legislators in a formal letter raised concerns about the limitations of imposing import bans in curbing forced labour problems as a whole, explaining that “these odious labor practices and their pervasive impact across supply chains highlight the need for an aggressive and effective enforcement strategy.”

It may be harder to allay lawmakers’ concern without clear data evidence from producer companies and countries about incidence rates and measured improvements. Segi Enam principal Khor Yu Leng pointed that while there is a Jakarta-based council set up to address the concerns linked to palm oil production, the council has yet to “show any muscle.” There is also an newly established ASEAN-EU ministerial-level Joint Working Group on Palm Oil, which seeks to address sustainability concerns associated with palm oil. With the first meeting just only held in late January 2021, its true effect on the industry remains to be seen.

RCEP: What's the Big Deal?

As Trans-Pacific View author Mercy A. Kuo writes, “RCEP is literally a big deal… RCEP consists of diverse countries—rich and poor, vast and tiny, highly advanced and those just beginning to industrialize”. The signing of the Regional Comprehensive Economic Partnership (RCEP) by the 10 ASEAN nations, China, Japan, South Korea, New Zealand, and Australia on 15th November 2020 does mark a historical moment. One cannot emphasize enough the geopolitical and economic impact this free trade agreement (FTA) would have towards the global economy.

To get started, here are some RCEP facts at the time this was written:  

• While China has existing bilateral trade agreement, RCEP represents their first regional multilateral trade deal.

• RCEP was eight years in the making.

• The trade deal covers 15 countries with a population of 2.2 billion people with a combined GDP of $26.2 trillion or 30% of global GDP.

• An analysis by the Peterson Institute suggests RCEP would boost global trade by $500 billion in the next ten years (a 1% boost to trade flow?) 

• World income is promised to increase $209 billion annually (or $27 for each of the 7.8 billion people)

• India opted out but are still welcome to join should the South Asian country change its mind.

• Regional Comprehensive Economic Partnership is not as comprehensive as the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). 

Source: Heijmans and Nguyen (2020)

Economic significance

RCEP covers 30% of the world’s economic output (GDP), making it the largest free trade area. The signing of RCEP amid a Covid-19 pandemic is not a coincidence or a stroke of luck—the deal was concluded after eight long years of negotiations, a feat considering that the coronavirus has laid waste to economies both local and global.

While the pandemic is expected to result in nations become more inward-looking in their policies, the fruition of RCEP is testament to the contrary. Cross-border investment, intellectual property, goods and services, government procurement, financial services, and e-commerce are just some of the areas that the FTA covers. Specifically, according to Bloomberg, RCEP is meant to eliminate tariffs on imported goods, strengthen the value supply chain with common rules of origin and codify new e-commerce rules (but tariffs are already low).

Furthermore, the US-China trade war has made RCEP indispensable. The tit-for-tat tariff banter between the two superpowers have threatened to upend the value supply chain in the international economy. RCEP is thus a means for East Asian economies to be interdependent among one another without relying on a developed economy like the US, signifying a world order where the US plays a less significant role.

The withdrawal of the US from TPP further suggests that the country at that time had no intentions of forming an FTA with East Asian economies, with the Trump administration adopting a protectionist approach when it comes to foreign economic policies. It is worth noting, however, that the overall sentiment of the US towards China has always been underlined with suspicion, even before Donald Trump became President; this suspicion towards Beijing was merely heightened under the Trump administration and is unlikely to disappear anytime soon. The question now is: will President-elect Joe Biden come to the same decision regarding the RCEP and reconsider joining CPTPP, or will he remain on the fence? 

A JP Morgan report identifies sectors that would benefit from RCEP:

• manufacturing

• electronics

• industrial machinery

• autos

China’s Dual Circulation Strategy

Interestingly, RCEP complements China’s overall economic strategy. As the name suggests, the country’s dual circulation strategy is a two-part plan in effort to become self-sufficient in a time full of economic uncertainty. The strategy is part of China’s 14th five-year plan (2021-2025), with an emphasis on the internal circulation, i.e. stimulating the domestic market, without abandoning the external circulation, i.e. export-oriented development strategy.

It is in the external circulation bit that RCEP complements China’s economic strategy. While developing its domestic market to boost self-sufficiency, China would open the country to more trade relations with other nations. The signing of RCEP laid the foundation as China’s first multilateral FTA. It would simply a matter of time before China would consider joining other more advanced FTAs, such as CPTPP.  

Why is there RCEP when CPTPP exists?

Source: Loh (2020)

TPP was signed under the Obama administration in early February 2016 with a particular goal in mind: to foster economic and geopolitical cooperation among the nations that house the Asia-Pacific region (but it was announced by Hilary Clinton in the Department of State, so that is seen as geopolitical). TPP member countries consisted of the 11 Asia-Pacific nations of CPTPP with the inclusion of the US. However, the following year saw the Trump administration withdrawing the US from the FTA. Following this, TPP reformed itself into CPTPP, with most of the free trade terms still intact.

To reiterate, CPTPP is one of the largest free trade agreements, comprising 13.5% of global GDP centered on Asia-Pacific economic cooperation. Then there is the RCEP, which is arguably the largest FTA, covering 2.2 billion people with a combined GDP of $26.2 trillion.

Concurrently, there are two FTAs that are centered around the economies in the Asia-Pacific region. The questions that arise are: (1) why are there two FTAs; and (2) what separates them apart? To answer the latter, one includes China and the other does not, although that may soon change. However, a more notable contrast between the two agreements is simply that RCEP is not as comprehensive as the CPTPP when it comes to the terms of trade. CPTPP outlines provisions regarding sustainable practices of the environment, labour, human rights, and the need for transparency and freedom of information, which are missing from RCEP.

The fact that there are two FTAs centered around the same region insinuates geopolitics in play by means of who stands to benefit from a multilateral economic expansion and who stands to lose. This would explain some of countries stance on RCEP, particularly the US and India, who may be of the opinion that signing the FTA is not entirely favourable to them. 

Geopolitical significance

The narrative spun by western news outlets would have us believe that RCEP is a China-led initiative, with the sensational headlines such as “Why is China Creating a New Asia-Pacific Trade Pact” circulating the media, creating a misunderstanding especially if the rest of the write-up goes unread. It is worth reiterating here that RCEP is an ASEAN-led initiative and, had it been spearheaded by China, the likeliness of RCEP coming to fruition would be slim.

Nevertheless, China does stand to be the biggest beneficiary of the RCEP, allowing the Asian giant to expand its economic influence over Asia-Pacific. The FTA provides China with the opportunity to create new value supply chains amongst REP member countries, establishing itself as a possible hegemon in a time where US influence is diminishing (although suggesting that the US is no longer the global economic hegemon is a highly contested argument itself).

Interestingly, while RCEP was presented as a step towards multilateralism, sceptics believe otherwise. There is underlying pattern of countries being more confrontational towards China, stemming from the US-China trade war—trade tensions between Australia and China is a notable example. The worry amongst political and economic stakeholders is that countries will become more vocal in expressing their dissatisfaction against China in matters of world affairs, creating tension among RCEP member countries and potentially compromising the FTA. 

The future of RCEP?

Now that RCEP is signed, the implementation of the FTA shall only take place once it is ratified by each participating country, a process that may take years. There are still uncertainties regarding the agreement and the effect it will have in the Asia-Pacific region and its Western allies. The uncertainties stem from the future of trade amidst the backdrop of an ongoing pandemic and how RCEP will evolve to cater to unforeseeable changes, including the likelihood of India re-joining, the US position in this new global economic order, and future of trade multilateralism as a whole. 

As with any multilateral trade agreement, there will be winners and losers, so the real question here is: are the countries ready to shoulder the burden of the losers? Only with the unravelling of time would we see these questions being answered.

By Cyrene PERERA, Segi Enam intern, 14 Jan 2021 | LinkedIn

Edited by KHOR Yu Leng and Nadirah SHARIF

SIIA Haze Outlook 2020: Policy Directions for 2019-2020

The risk assessment on the possibility and severity of a haze this year made in the SIIA Haze Report 2020 (authored by the Singaporean Institute of International Affairs (SIIA) and Segi Enam Advisors) involved analysing the recent policy directions undertaken by the Indonesian government.

Naturally, much of the analysis was focused on the Peatland Restoration Agency (Badan Restorasi Gambut or BRG), the agency first set up by President Joko Widodo in 2016 with the mandate to re-wet 2.67 million hectares of peatland across seven provinces by 2020. By end-2018, BRG reported that it has restored 780,000 hectares of peatland, although observers have pointed out that the lack of transparency and independent monitoring made it difficult to verify that claim (Jong, 2020; Gewin 2020).

BRG’s ambitious goal to re-wet 2.67 million hectares of peatland required the corporation of several agencies and a funding of at least 39 trillion rupiah (USD2.73 billion) (Jong, 2018) (Photo credit: BRG)

Recent policy efforts are also aimed to halve the number of hotspots from the 2015 count by 2019, beginning with ensuring that 2.4 million hectares of peatland remain unburned and identifying up to 731 villages as fire-prone communities (Coordinating Ministry for Economic Affairs of Indonesia/KKBP et al., 2017). The government has taken various measures in attempt to achieve this objective, including upgrading early fire responses, increasing the enforcement of existing laws regarding forest concessions, and developing adequate infrastructure (such as water management systems) in fire-prone areas.

Read the full report for more information: SIIA Haze Report 2020

SIIA Haze Outlook 2020: Recent Literature Findings

Continuing from our work on the Haze Outlook 2020 published on 23 June 2020, Segi Enam reviewed in brief the recent literature pertaining to Indonesian and Malaysian peatland and fires. In the past couple of years, there were nearly 150 research papers and articles published, with almost half focusing on fire occurrences. A smaller, but significant portion of these articles area also on peatland management and mapping, as well as people-related topics including agricultural livelihood and health impacts.

One of the more notable studies centred on early fire warning systems, including using ground sensor technology to collect environmental data (Kadir, Irie, and Rosa, 2019) and improvement to Indonesia’s current Fire Danger Rating System using satellite data to identify fires caused by human activity (Sanjaya et al. 2019). Some academics have also evaluated the effectiveness of fire control regimes within the local communities, a few of which were by Watts et al. (2019) and Yamamoto, Takeuchi, and Köhlin (2020), whereby it was found that economic incentive is required to ensure the efficacy of community-based fire prevention policies.

A significant number of academics have also recently been diving into the issue of peatland mapping and analysis via satellite imagery, including major researchers in peatland research. Vernimmen et al. (2020, along with notable authors Hooijer and Page), for example, have been addressing the mapping of deep peat carbon stock from aerial and field measurements, and found that occurrences deep peat in eastern Sumatra were previously underestimated in earlier mapping exercises. Other relevant research papers further explored the subject matter, with one suggesting the use of an open digital mapping methodology in order to combine open data, field observations, and factors already known to affect peat thickness (Rudiyanto et al. 2018).

Findings by Vernimmen et al. (2020) showcasing the peat thickness measurement in selected areas of Bengkalis and Kubu Raya.

In summary, most of the recent literature on peat offer suggestions on improvements to existing research efforts and current peat management framework. Overall, regardless of the topic of the paper, the common conclusion is that much more still needs to be done when it comes to managing peat.

SIIA Haze Outlook 2020: Climatic Conditions & Weather Forecasts

On 23 June, the Haze Outlook 2020, written by the Singapore Institute of International Affairs (SIIA) and Segi Enam Advisors, was released to the public. Essentially a risk assessment report on the transboundary haze incident within the ASEAN region for 2020, the report operated on a weather-peat-people framework and found that there is moderate risk of a severe transboundary haze incident this year.

With specific reference to weather, we gathered and analysed recent forecasts, meteorological indicators, and other weather-related risk factors for the year 2020. Overall, weather conditions for now appear favourable, particularly with regard to the El Niño–Southern Oscillation (ENSO) and Indian Ocean Dipole (IOD) phenomenons. While NOAA’s March outlook expects an exceptionally warm year, the indicators for ENSO and IOD are relatively neutral.

Climate events indicate that dryer-warmer conditions are muted for the time being.

Over in Indonesia, the Meteorology, Climatology, and Geophysical Agency (BMKG) forecasts that 30% of regions entering the dry season in the next three months after May will be experiencing drier-than-usual weather conditions, including areas in North Sumatra, Riau, and West Kalimantan. The agency also warned of the possibility of an early dry season for Bali, Nusa Tenggara, West Jawa, and Central Jawa. Similarly, several plantation corporations operating in Indonesia have also voiced concerns about the dryness and high temperature expectations throughout the region.

SIIA Haze Outlook 2020

For the second annual edition of its Haze Outlook, the Singapore Institute of International Affairs (SIIA) teamed up with Segi Enam Advisors to provide a risk assessment report on the transboundary haze incident within the ASEAN region for the year 2020. Officially published last Thursday, our findings indicate a moderate risk of a severe transboundary haze incident in 2020. While weather outlook remains favourable, the Covid-19 pandemic has raised justifiable concerns about Indonesia's preparedness to deal with the fires and haze.

As co-authors, Segi Enam Advisors collated and examined qualitative and quantitative data from relevant literature published throughout the recent years. Working on a weather-peat-people framework, we looked at the latest academic research on, inter alia, peatland management and fire prevention as well policies and efforts with regard to the same. We also collected and analysed weather data, i.e. temperature and rainfall conditions, to complete the overall risk assessment of a haze for the year 2020.

Segi Enam also provided geospatial analysis of two key areas of fires incidences in the Riau and Central Kalimantan regions (please refer to Appendix A of the report). The two case studies give a geographical overview of the aforementioned areas as well as an analysis of hotspot locations detected in 2015 and 2019.

Climate Change & ASEAN - Review of Recent Policy Issues at the 10th AIPA Caucus

At Parlimen Malaysia last week, I reviewed recent policy issues on #climatechange and #ASEAN. It was a brief lit review. For background, I also had the chance to talk to researchers from Oxford and Cambridge, to drill on certain economic questions.

All ASEAN delegates were concerned on climate risks in the region. Progress and plans mentioned by each country. Including some discussion on #carbontax, with Singapore reflecting on its implementation. Regret on low #carbonprice was noted by Cambodia. #Wasteplastics and #landfill concerns and also caution on #incinerators.

On the sidelines, a good chat with Vietnam expert on #coconuts, farmer income, high yield and #Intercropping options; regret on the income problems for younger rural families in monocrop zones of #oilpalm and #rubber.

Had a chance to meet delegates from most member states, but Thailand and Indonesia not present due to political transitions. Other working group tracks on women, children & trafficking and terrorism.

At the 10th AIPA Caucus, Kuala Lumpur, Jun 2019